A blog about our new life in Sant Cugat, strange discoveries, amusing local news, politics, economics and cute stories about kids.

Friday, April 20, 2012

Untying the unpaid bill knot

Imagine that you have an economy that is paralyzed by unpaid bills. Nearly every company is owed money, and most companies also owe other companies money. A lot of this money is many months overdue, and its hard for companies pay their bills, if their own bills haven’t been paid.

One idea would be to create a central computerized database of money owed to companies. Since everyone already has a unique identification number, and VAT needs this information anyway, it seems like the pieces are already there.

The advantage of having a system like is is that it could do a network analysis and figure out how to net the payments. Eg, if company A owes 100 euros B, who owes C who owes A, you can basically cancel out the payments, with no real loss to anyone.

Government money could used to do free up funds with a huge multiplier effect, since the system could analyze how much money would be freed up by loaning money to a given entity.